These dividend stocks were stars in 2016.
Dividend stocks are a meaningful source of income for many investors, especially those nearing or in retirement. And unlike bonds, which lose value in rising rate environments like today’s, dividend stocks give investors a chance to make money through both dividend payments and capital gains. Looking back on last year, the best dividend stocks of 2016 rewarded investors with huge, market-beating returns. But how did they crush the market? Which industries were hot? And exactly how much money did shareholders make? The following stocks all had exemplary years in 2016, lining investors’ pockets with the best of both worlds: high dividend payments and capital gains.
AT&T (ticker: T)
Telecommunications giant AT&T isn’t usually considered a high-flyer. Companies worth $260 billion don’t generally have huge swings in value from day to day. But AT&T defied convention and beat the market in 2016, returning 23 percent. AT&T shares are also perennial favorites of income investors, who enjoy the healthy dividend. A late-year rally helped T stock stand out from the crowd, as the market cheered the prospects that a proposed merger with Time Warner (TWX) would go through under the Trump administration. That, combined with the successful integration of DirectTV, made AT&T one of the best dividend stocks of 2016.
Dividend yield: 4.6 percent
2016 performance: 23 percent
Chevron Corp. (CVX)
Shares of Chevron were beaten down going into 2016, as America’s shale revolution and Saudi Arabia’s decision to stubbornly keep pumping left a global oil glut that weighed on prices. But that low point left plenty of room for Chevron and its peers to rally as crude oil climbed from $27 a barrel in February to double that by the end of the year. As oil prices rose, so did the value of Chevron’s sprawling reserves, and so did the CVX stock price. Chevron is perennially one of the best oil stocks to buy, for beginning and experienced investors alike.
Dividend yield: 3.7 percent
2016 performance: 28 percent
Rio Tinto plc (ADR) (RIO)
Mining powerhouse Rio Tinto enjoyed a prosperous 2016 — any gold-digging shareholders got what they came for. The commodities rally was far and away the biggest catalyst for the company, which mines for iron ore, aluminum, coal, copper and diamonds. RIO shares also benefited from a late-year surge after the election of Donald Trump, who markets widely perceive as being good for business. The prospects for iron ore, which is Rio’s biggest product and also a key component in steel, may be improving as Trump touts infrastructure spending as one of his major goals.
Dividend yield: 3.9 percent
2016 performance: 29 percent
Caterpillar (CAT)
Rio Tinto does the mining, but Caterpillar supplies the equipment. So it’s no surprise Caterpillar shares were also big winners in 2016, as rebounding commodity prices made investing in new equipment more economical. Caterpillar was the single best-performing stock in the Dow Jones industrial average last year, and that, combined with its impressive dividend, makes it one of the best dividend stocks of 2016. Going forward, CAT should benefit handsomely if Trump follows through and ratchets up infrastructure spending, which is probably why shares tacked on about 15 percent in November.
Dividend yield: 3.3 percent
2016 performance: 34 percent
Qualcomm (QCOM)
The technology sector isn’t exactly famous for shelling out dividends to shareholders, but that’s precisely where Qualcomm excels. The business model is perfect for income investors, as most of the company’s profits come from licensing its vast portfolio of intellectual property to original equipment manufacturers. QCOM struggled in 2015 to ink deals with OEMs, but its fortunes reversed in 2016, when Qualcomm reached licensing agreements with Lenovo and other Chinese manufacturers. Revenue, which had been slumping, rebounded in the third quarter, impressing analysts and investors alike.
Dividend yield: 3.3 percent
2016 performance: 35 percent
Energy Transfer Equity LP (ETE)
This pipeline company got off to a terrible start in 2016, quickly plunging by more than 70 percent. Thankfully for patient investors, that was a severe market overreaction, and shares would mount a fierce rally through the end of the year. Pipelines are the closest thing to real-life cash flow machines, with shareholders collecting fees on anything that flows through them. A number of ETE’s pipelines should start generating cash this year, including the controversial Dakota Access Pipeline. The dividend, now around 6 percent, spent chunks of 2016 above 10 percent, and for a time was yielding in the mid-teens.
Dividend yield: 5.9 percent
2016 performance: 44 percent
Cummins (CMI)
Cummins, which makes diesel and natural gas engines and fuel systems, was one of the best dividend stocks of 2016, despite little in the way of great operational performance. With commodities rallying, industrials like Cummins did, too. After all, some of CMI’s biggest end customers, like Paccar (PCAR), make trucks and vehicles used for transporting all sorts of loads, and the mining industry is a heavy end user. Cummins is cutting costs and the conditions appear to be in place for CMI to succeed moving forward, hence the nice 50-plus percent return (and a decent dividend) in 2016.
Dividend yield: 3 percent
2016 performance: 53 percent
Spectra Energy Corp. (SE)
Energy Transfer Equity wasn’t the only pipeline stock to soar in 2016 — shares of Spectra Energy, the Houston-based oil and gas pipeline, performed incredibly well last year. Remember, Wall Street was extremely pessimistic on all energy stocks to kick off 2016, giving SE stock a very low starting point from which to rally. Investors quickly realized the stock was dramatically oversold, and the stock progressively advanced as the year wore on. But the real reason SE was one of 2016’s biggest winners came in September, when Enbridge (ENB) agreed to buy Spectra at a 12 percent premium for a cool $28 billion.
Dividend yield: 3.9 percent
2016 performance: 72 percent
Banco Santander Brasil SA (ADR) (BSBR)
In 2016, this Brazilian bank, owned by the Spanish financial giant Banco Santander, S.A. (ADR) (SAN), fared better than its sister banks in Spain and the U.K. The Brazilian real fell 35 percent in 2015, but a 20 percent rally in the currency amid signs that the recession was coming to an end helped make 2016 a turnaround year. Even though BSBR was one of the best dividend stocks of 2016, it’s not an investment for the faint of heart. Emerging markets like Brazil are still relatively volatile; most of the best bank stocks to buy for 2017 don’t carry that risk.
Dividend yield: 4.9 percent
2016 performance: 123 percent
Oneok (OKE)
Oneok was the single best dividend stock of 2016, returning 138 percent for investors — before dividends. While the dividend sits at more than 4 percent now, its 2016 yield was much higher for most of the year. Last January, for instance, it was yielding more than 10 percent. Essentially, OKE stock owners got a 150 percent total return in just a year’s time. So what’s the secret to Oneok’s success? Keep doing what you’re doing. Oneok gathers, processes, stores and transports natural gas, which soared in value in 2016. Pipelines are its bread and butter, and a source of tremendous free cash flow.
Dividend yield: 4.2 percent
2016 performance: 138 percent
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The 10 Best Dividend Stocks of 2016 originally appeared on usnews.com
